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when we calculate the contribution for the whole company why don’t we do this:
800 less variable cost of selling division 250 and less transfer price of the provider divison like 150*1.35?Hi Doraglazer,
Thanks for your question.
Yes this is because the ‘transfer price ( eg the 150*1.35) is ignored in terms of real costs and revenues from a group perspective.
The only real costs to be deduced from the $800 external selling price is the extra costs of the division TC ($250) and the manufacturing costs of OB ($150)
Any arrangement between them is just for the divisional profit purposes and will not affect the final profit of the group.Please watch the videos… John does a great explanation & overview which will show this query in his examples
Thanks
Cath
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